The Importance Of Managing Pensions

The UK’s first National Pension Tracing Day will be launched on the 31^st of October 2021. This involves asking the pensions industry for its support in helping people to act over pension pots that have either been lost or forgotten. It is thought that there is an estimated £19.4 billion of unclaimed pension pots and around 1.6 million pensions, with the average lost pension pot being worth roughly £13,000.

It is thought that job changes and house moves can be two of the biggest factors contributing to the loss of pensions. On average, people switch jobs 11 times and forget to notify their pension providers. The Department for Work and Pensions (DWP) has stated this could lead to 50 million dormant and lost pension pots by 2050. This shows how easy it is for pensions to become lost and why managing your pension and finances is so important.

DWP online service – Pension Tracing Service

In 2016, a new DWP website was launched by the Pension Tracing Service to help people more easily and quickly locate their lost pension savings.

With people switching jobs it means they have many workplace pensions to keep track of. The DWP online service helps reunite people with their lost pensions and provides trace results immediately. Simply put your former employer’s details into the online database and it will show the contact details for pension schemes in which you have paid into.

With National Pension Tracing Day being on the 31^st of October, the date on which the clocks go back, people are being urged to use this additional hour to try and track their lost pensions.

Best ways to manage your pensions:

 1. Find out the value of your pension – You should receive an annual statement each year telling you how much you have in your pension. This will show how your pension has performed with an individual breakdown for each investment in your pension.

2.  Find out how much your pension will be worth once retired – Some pension companies can estimate how much your pension will be worth once you’ve retired. However, if your statement doesn’t show this, call your company and ask for a rough estimate. For a more detailed analysis, to fully understand how much you can afford to spend in retirement, which takes into account all of your pensions, savings, and investments, consider contacting a financial adviser who can undertake cash flow modelling. This helps you to visualise your future, consider ‘what if’ scenarios, and help plan for any shortfalls identified.

3. Review your pensions – In every industry, as time moves forward innovation and design create newer, more modern options and products for consumers. The pensions industry is no different and what may have been a suitable pension for you 20 years ago, may no longer be the case. You can switch pensions to different companies, for example, newer policies may be able to offer more flexible options at retirement, or a wider choice for your beneficiaries on death, increased investment options, or simpler administration. It is important to consider any disadvantages to switching too, for example, does your existing plan offer any valuable benefits such as a guaranteed income, protected tax-free cash, or guaranteed growth rates, and is there a charge for switching providers. Your pension could be one of your most valuable assets and you may benefit from speaking to a financial adviser with expertise in this area to advise you on your options.

4. Consider topping up your pension – The majority of pension companies let you add a lump sum to your pension fund every month and you can add up to the value of your annual salary (up to the annual allowance) or £3,600, whichever is higher. There are however other limits to take into consideration, including the Annual Allowance, including carrying forward, the Money Purchase Annual Allowance, and the Lifetime Allowance. There have been many changes to pension rules over the last few years and it’s always important to seek advice to make sure you don’t unwittingly cause yourself an unnecessary tax liability, but instead benefit from the tax relief and tax benefits pensions can provide.